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In: Finance

Allied Tech Company, Inc. is a leading manufacturer of robotics, and the company owns several cutting-edge...

Allied Tech Company, Inc. is a leading manufacturer of robotics, and the company owns several cutting-edge patents on artificial intelligence. Mr. Jenkins, the CEO of Allied Tech said he believed the long-term growth (aka, terminal growth) rate of his company is 28%. The rationale behind his statement is his belief in the long-term growth prospects for artificial intelligence and robotics. Is the 28% long-term growth rate reasonable given his firm’s potential prospects? Why or why not? If you believe there is not enough information to answer the question, please explain why you think there is not enough information.

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Expert Solution

The 28% growth rate is not reasonable given Allied Tech Company’s potential prospects.

Firstly, for forecasting growth of any industry, it is important to consider: -

i. Growth from the supply side e.g. manufacturers, service providers etc.

ii. Growth from the demand side e.g. buyers, consumers

The question mentions 28% industry growth rate but fails to mention if it is from the supply side or the demand side.

Secondly, even if the industry is expected to grow at 28% it cannot be assumed that Allied Tech Company will also grow at the same percentage as 28% growth rate is indicative of “AVERAGE” growth and there will always be companies that will grow at a higher rate than 28% or grow at a lower rate than 28%.

Considering that Allied Tech Company is a leading player of robotics and owns several patents, it is safe to assume that its growth rate will be higher than 28% but it cannot be pointed out exactly how high the growth will be unless more information is available.

jeff jeffy answered 1 year ago
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